Exchange rate exceeds RON 4.5/EUR threshold

New maximum value of past six months.

The values of the national currency hovered close to RON 4.5/EUR in the first part of the interbanking session yesterday, so that the National Bank of Romania (BNR) announced an increased exchange rate for the five consecutive session, of RON 4.5010/EUR, a new maximum value for the past six months. A higher rate than Tuesday was announced by the central bank on June 21, when the European currency was RON 4.5209.
The Romanian currency recovered slightly from the drop against the USD, with the RON/USD exchange rate declining to RON 3.29902/USD. In the previous session, the rate was 3.3009 units, representing the highest figure since November 21, when the dollar was RON 3.3101. The exchange rate for RON/Swiss franc dropped from RON 3.6507/CHF to RON 3.6395/CHF.
The currencies of the emergent states have dropped over the past week following the dollar strengthening. As a rule, when the dollar is perceived by investors as a safer placement than the European currency, the strengthening of dollar against the EUR leads to the depreciation of the currency of the states in the region, which are deemed riskier than EUR.
However, RON reported a slower depreciation than the states in the European area, as it lost one per cent against EUR in December, whereas Polish zlot and Hungarian forint strengthened by 1.3-1.5 per cent.
The interest rates released on Tuesday by the commercial banks for collected deposits (ROBID) and placed deposits (ROBOR) in RON over a day dropped from 0.88 per cent – 1.38 per cent to 0.73 per cent – 1.23 per cent a year. The interest rates are much below the interest of monetary policy of BNR, of 4 per cent a year, an all-time lowest. On the other hand, the interest rates of the commercial banks are within the deposit rate of BNR, of 1 per cent a year.
Depreciation risks following domestic election pressure
The exchange rate will report a more volatile evolution this year than over the previous and will range between RON 4.35 and RON 4.65, the bankers perceiving some risks of depreciation in the context of domestic election pressures and of the monetary policy adjustments in the US, according to The major risk associated with the forecasts is the comeback of political turmoil, considering the pressures brought by an election year, according to experts.
“We forecast a rate of RON 4.48/EUR in late 2014. The domestic currency will range between 4.35 and 4.65 and will be affected by two major events, internationally Fed’s decision to cut purchases of financial assets, which impacts all the emergent markets, and domestically the busy political agenda, which calls, now more than ever, for the continuation of reforms agreed upon with the IMF and the European Commission,” said Eugen Sinca, chief-analyst for BCR. “As the economy will send clear signs of revival, we believe the national bank will allow a slight appreciation of the national currency, which might probably conclude the year at RON 4.35/EUR,” believes Vlad Muscalu, chief-economist of ING Bank. “We foresee a drop in the exchange rate in 2014, towards RON 4.55/EUR at the end of the year. The major challenge for the exchange rate in 2014 is the change in Fed’s monetary policy,” added Rozalia Pal, chief-economist for Garanti Bank.
The exchange rate remains a delicate area for Romanians, considering that more than 60 per cent of the population’s and companies’ loans are in EUR. The domestic currency depreciated last year by 1.26 per cent compared to the EUR, after the RON depreciation against the EUR was 2.5 per cent in 2012.

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